A Guide to Investing in Mexico 2019 Brochure / report title goes here | Section title goes here 1.0 Investment climate 01 1.1 Business environment 01 1.2 Currency 02 1.3 Banking and financing 02 1.4 Foreign investment 02 1.5 Tax incentives 04 1.6 Exchange controls 09 2.0 Setting up a business 10 2.1 Principal forms of business entity 10 2.2 Regulation of business 12 2.3 Accounting, filing and auditing requirements 13 3.0 Business taxation 15 3.1 Overview 15 3.2 Residence 17 3.3 Taxable income and rates 17 3.4 Capital gains taxation 19 3.5 Double taxation relief 19 3.6 Anti-avoidance rules 20 3.7 Administration 24 3.8 Other taxes on business 25 4.0 Withholding taxes 28 4.1 Dividends 28 4.2 Interest 28 4.3 Royalties 28 4.4 Branch remittance tax 28 4.5 Wage tax / social security contributions 28 5.0 Indirect taxes 30 5.1 Value added tax 30 5.2 Capital tax 30 5.3 Real estate tax 30 5.4 Transfer tax 31 5.5 Stamp duty 31 5.6 Customs and excise duties 31 5.7 Environmental taxes 31 5.8 Other taxes 31 6.0 Taxes on individuals 32 6.1 Residence 32 6.2 Taxable income and rates 32 6.3 Inheritance and gift tax 33 6.4 Net wealth tax 33 6.5 Real property tax 33 6.6 Social security contributions 33 6.7 Other taxes 33 6.8 Compliance 33 7.0 Labor environment 34 7.1 Employee rights and remuneration 34 7.2 Wages and benefits 34 7.3 Termination of employment 35 7.4 Labor-management relations 35 7.5 Employment of foreigners 35 8.0 Deloitte International Tax Source 36 9.0 Contact us 37 II A Guide to Investing in Mexico 2019| Investment climate 1.0 Investment climate 1.1 Business environment The United Mexican States or, as it is more OECD member countries conventionally called, “Mexico,” has a Australia Hungary Norway population of 119,938,473 million, covers a Austria Iceland Poland land area of 1,964,375 square kilometers (1,220,606 square miles) and has Spanish as Belgium Ireland Portugal its official language. Canada Israel Slovakia Chile Italy Slovenia Mexico is a federal republic formed by Czech Republic Japan Spain 32 states. The political system comprises federal, state and municipal governments. Denmark Korea (ROK) Sweden The government is divided into three Estonia Latvia* Switzerland branches: executive, legislative and judicial. Finland Luxembourg Turkey Each branch has specific competencies France Mexico United Kingdom granted by the constitution. The president leads the executive branch. The legislative Germany Netherlands United States branch has both federal and local legislative Greece New Zealand powers, with responsibility for issuing laws Enhanced engagement countries and regulations. The judicial branch is Brazil India South Africa formed by the Supreme Court of Justice, the Electoral Court and federal and local courts China Indonesia that are responsible for interpreting and OECD accession candidate countries enforcing Mexican law. Colombia Costa Rica Lithuania Mexico’s economy is driven by foreign * Accession date February, 2018. trade. Export earnings are fueled by manufacturing, although oil, tourism, agriculture and mining also contribute to revenue. The US is Mexico’s largest trading partner due to its geographical proximity and the benefits of the North American Free Trade Agreement (NAFTA). Despite increasing competition from China and India, many foreign companies still choose Mexico for assembly facilities and other operations. Other major export markets include Canada, Japan and Spain. Key countries from which Mexico imports goods include Germany, Japan and Korea. 01 A Guide to Investing in Mexico 2019 | Investment climate Mexico has 12 free trade agreements (FTAs) Customs clearance of goods is done Patents allowing the owner the exclusive with 46 countries and regions, 32 mutual electronically, which facilitates import and right to exploit an invention are granted for investment promotion and protection export operations. up to 20 years and are non-renewable. agreements with 33 countries, and nine economic complementation and partial Mexico has agreements with Korea (KOR) and scope agreements. The main benefit the US that allow the exchange of information 1.2 Currency granted under the commercial agreements related to customs transactions. US and is the application of preferential rates of Mexican customs officers also make joint The official currency in Mexico is the peso importing goods considered originating inspections of goods. (MXN). from the FTA member nations. Based on the framework of the exchange of Mexico is an active participant in multilateral customs valuation information agreements, 1.3 Banking and financing and regional forums, such as the Word Trade the Mexican and US governments have been Organization (WTO), the Asia-Pacific Economic working on establishing mechanisms for Many foreign multinational groups dominate Cooperation (APEC) and the Latin American mutual recognition for supply chain security Mexico’s financial system. Their affiliates Integration Association for the development of programs granted by both governments compete with independent financial firms Latin American Countries (ALADI). Mexico also to strengthen the trade and supply chain operating as public development banks, is a member of the Organization for Economic arrangements between the two countries. public credit institutions, private commercial Cooperation and Development (OECD). banks, private investment banks, savings and Economic activity is concentrated in Mexico loan associations, and mortgage banks. Other As a member of the WTO, Mexico has removed City. The six northern border Mexican components of the financial system include most of its export nontariff restrictions and states are home to much of the country’s securities market institutions, development regulations and has substantially reduced manufacturing, sities particularly maquiladoras trust funds, insurance companies, credit export taxes, as well as direct export producing goods that are exported. unions, factoring companies, mutual funds subsidies. Mexico has joined the Wassenaar and bonded warehouses. The banking sector Arrangement to implement export controls Price controls remains highly concentrated, with a handful for conventional weapons and their parts Mexico generally does not have price controls. of large banks controlling a significant market and components, dual use goods, software share, and the remainder comprised of and susceptible diverted technologies for the Intellectual property regional players and niche banks. manufacture and proliferation of conventional In accordance with the Federal Copyright and other weapons of destruction. Law, the National Copyright Institute Mexico City is the country’s main financial (INDA – an independent agency of the center, although Guadalajara and Monterrey Mexico has several export incentive programs Ministry of Education), is responsible for the (the country’s second and third ranked and special temporary import programs administrative enforcement of copyright cities, respectively) also are important to encourage export sales. The legislation legislation. INDA is authorized to conduct financial, industrial and commercial centers. promoting manufacturing facilities in investigations, request inspections, address Mexico (maquiladoras) makes the country copyright violations and impose sanctions. an attractive place to manufacture and 1.4 Foreign investment assamble goods for final export to the US The law grants an author “personal” and and other markets. Additionally, to encourage “property” rights; personal rights recognize the Mexico offers an attractive business and support national exports and promote author as the first and sole perpetual owner of environment, legal certainty, an extensive foreign investment in Mexico, the government the rights to his/her works and property rights free trade agreement network and a has also implemented the Decree that allow the author to “exploit the work exclusively developed economic sector. Foreign Establishes Sector Promotion Programs or authorize others to exploit the work”. investment has been simplified by (PROSEC), which provides preferential import Penalties apply for violation of the copyright law. legislative changes, a reduction in legal duty rate treatment for goods to be used and administrative bureaucracy and local by Mexican producers in a manufacturing The Industrial Property Law protects the content requirements, the elimination of process. Recent legislation also has created exclusive right to use trademarks throughout most import license requirements and special economic zones (SEZ) in Mexico that the registration period. Trademark protection an overhaul of the intellectual property will offer tax, customs duty and administrative covers the goods and services registered legislation. There are no general restrictions and regulatory benefits to companies setting under Nice Classification standards. Mexico or limitations on the remittance of up in the zones (see below under 1.5). also is part of the Paris Convention for the dividends or repatriation of capital. Protection of Industrial Property. 02 A Guide to Investing in Mexico 2019 | Investment climate The Foreign Investment Law (Ley de Inversión • Foreign individuals or entities that A Mexican entity with foreign investment Extranjera or LIE) and regulations specify routinely perform commercial activities in and that agrees to a “Calvo Clause” may the rules for foreign investment activities Mexico; and acquire property located in the restricted in Mexico. Foreign investment is permitted zone for